Short-Term Rentals A Key Factor In Sluggish Hotel Rate Growth
Short-Term Rentals a Key Factor in Sluggish Hotel Rate Growth
- Feb 3, 2020
Courtesy: Dennis Schaal | News Source: skift.com
Many hoteliers for the last several years have minimized the impact of short-term rentals on their bottom lines in what could be seen as an Airbnb defense. But a new report suggests that alternative accommodations, as well as growth in hotel supply, curb U.S. hoteliers’ options to hike average daily rates during peak periods.
“In most markets with high short-term rental supply growth, average daily rate increases have been below inflationary levels and/or recent historical trends,” according to CBRE Research’s Short-Term Rentals: A Maturing U.S. Market & Its Impact on Traditional Hotels.
Because of the nature of short-term rentals, which can flood a market during major events or peak seasons and then vanish from the market thereafter, hoteliers have seen their traditional pricing power limited, the report said.
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CBRE cited research that found hoteliers’ ability to obtain premium pricing during peak periods “will remain mitigated over time,” and will blunt growth in new hotel construction.
Separately, STR reported that in 2019 average daily rates in the United States rose 1 percent to $131.21, and revenue per available room nudged upwards similarly, 0.9 percent, to $86.76.
As it showed throughout 2019, “revenue per available room growth came in lower than any year since the recession and well below the long-term historical average of 3.2 percent,” said STR President Amanda Hite in the analytics firm’s announcement about last year’s key U.S. hotel metrics.
Average daily rates were the lone driver of revenue per available room gains, she said. “Unfortunately, with ADR rising below the rate of inflation, revenue growth is not keeping up with rising costs, such as increases in wages,” Hite said. “That is a concern for owners and operators alike.”
These trends should be — and undoubtedly are — an important concern for hotels when it comes to profit growth. But in public statements over the past few years, C-suite execs from the big chains have tended to downplay the threat from short-term rentals.
Gary Steffen, Hilton’s global head of Canopy, doesn’t think short-term rentals will be a negative for the hotel industry.
“We believe this is a different kind of customer looking for a different kind of stay,” Steffen said from the American Lodging Investment Summit. “We don’t think it’s bad for the industry. It’s bringing in people who want to travel.”
In other findings from the CBRE report:
Short-term rental supply growth in the U.S. is forecast to slow to 19 percent in 2020, down from 26 percent last year.
Suburban and rural areas are the primary venues for short-term rental supply growth; urban inventory accounts for 21 percent of total supply in the United States, down from more than 45 percent in 2014.
More than 100,000 net new short-term rental units are forecast to enter the U.S. market in 2020 and they will constitute 12.2 percent of overall lodging supply. That’s up from 10.4 percent in 2019.
Los Angeles, which displaced New York City as the city with the largest short-term rental supply in 2018, remained at the top in 2019. Three U.S. cities — Los Angeles, New York City and Orlando, Florida — made up 12 percent of all short-term rental supply in the U.S. in 2019.
Branded short-term rental management companies — such as Sonder, Stay Alfred, Lyric, and Domio — can “better compete with individual operators” by consolidating multiple units, branding them to elicit consumer trust, scaling faster, and operating purpose-built buildings and converting them.
Hotel valuations have traditionally ignored the impact of short-term rentals, “but at a minimum it is certain to include a respectful consideration of short-term rentals.”
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